Rocketing rents and rates ‘unmanageable’ for London restaurants

ByLisa Riley

Published: 16 May, 2018

Rent and rate increases in London have left restaurant operators in fear for the future, with 84% saying the charges have become “unmanageable” for their businesses.

In a report released today by Cedar Dean Group (CDG), which covers 600 restaurants in the capital, 90% of operators said if rents and rates increased as forecast, costs would be “unsustainable” for business.

In addition, the 2018 Restaurants Rents Report revealed outlets were currently spending an average of 21% of their turnover on rent - instead of 12% - the maximum they could generally afford, said CDG.

“We always knew that the upward only rent review system created a cliff edge ending for operators but these latest statistics are much worse than what we saw a year ago,” said CEO David Abramson.

Rent and rates were coming in at a around 30% of turnover which, at the double industry standard, was not sustainable, he added.

The research comes as the city’s restauranteurs face the most challenging business environment in recent history, with prime central London having seen “colossal rent hikes” over the last few years, far outpacing those seen in the rest of the capital, said Abramson.

“Perhaps most worryingly, this means restaurateurs are spending an average of 21% of turnover on rents, already more than CDG’s forecast for 2021 and up from 16% last year,” he said.

Historically, the maximum percentage of turnover spent on rent should be 12%, but this had jumped by 70% over the past five years and 140% over the past decade, according to the report.

CDG said it had turned to Westminster Property Association (WPA) for help, suggesting it considers its Corporate Social Responsibility in assisting to lobby landlords for affordable rents, recommending urging landlords to take turnover into account when giving new lease or executing rent reviews – rather a pound per square foot basis.

However, the response was that such an affordability statement could reduce footfall and undermine successful operators - something CDG “fundamentally disagree with”, said Abramson.

“One thing the last few months has shown is that high rent and rates are not just affecting businesses that need to improve but also operators that invest substantial sums in the capital city including the likes of Ripley’s, Believe it or Not, Jamie’s Italian and Byron who have all suffered closures,” he said.

On the back of the research, CDG predicted the situation would lead to more remote central kitchens, an increase in reverse premiums as landlords struggle to shift empty space and an exodus of restaurants from central London in favour of fringe locations or even cheaper, regional cities.